1. RUNNING HEAD: CORRUPTION IN MALAYSIAN GOVERNMENT STUNTS COUNTRY’S GROWTH 1
1Malaysia Development Berhad Corruption Scandal Stunts Country’s Growth
Amanda M. Carullo
State University New York, Old Westbury

2. CORRUPTION IN MALAYSIAN GOVERNMENT STUNTS COUNTRY’S GROWTH 2
Abstract
Speculation has unveiled a slew of unethical practices and corruption amongst Goldman Sachs and
Malaysia’s own government, 1Malaysia Development Berhad (1MBD), is being accused of transactions
which has consequently, sent Malaysia into a tailspin of economic decline. Najib Razak, Malaysian Prime
Minister and chairman of the board of 1MBD, is at the forefront of a scandal wreaking havoc and
instability in the country and plunging the value of their currency by nearly 20%, its lowest value in
decades. “What was supposed to be a joint venture that will bring economic benefits to the country was
nothing more than a scheme to scam billions of ringgit from Malaysia”. The Malaysian Insider, Tat,Ho
Kay. If allegations are true, this case is particularly interesting for the deliberate, unethical decisions
made by few,and for the sheer, blatant lack of regards of repercussions that those decisions would bestow
on the masses. In nearly every substantial transaction Malaysian Development Company engaged in was
unsettling, from the acquisition to the lack of transparency throughout. “From the moment in 2009 when
Najib took over a sovereign wealth fund set up by the Malaysian state of oil-rich Terengganu and turned it
into a development fund owned by the federal government, 1MDB has been controversial.” Bloomberg
Business Week, Yoolim Lee and Ellfie Chew

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Najib Razak is the current Malaysian Prime Minister, finance minister, and chairman of 1MBD’s advisory
board. The first ethical red flag is the lack of transparency between Najib’s vast authority in the company
and in the government, (which later facilitated the alleged laundering of $700 million into Najib’s
personal accounts). Given his position of power, when Najib took initiative to acquire the wealth fund set
up by the state of Terengganu, he went over the scope of the state and in 2010 created 1MDB,turning
Terengganu’s Investment Authority into a federally-backed entity. According to Bloomberg Business
Week, being referenced severaltimes throughout this paper,the company’s mission claimed to be “a
state-owned strategic development company that would forge global partnerships, draw foreign
investment to Malaysia, and build up the country’s industrial base”. Bloomberg BusinessWeek, Yoolim
Lee and Ellfie Chew
His acquisition seemed to have over-stepped the hierarchy and blurred the lines of delegation. This
allowed Najib to control this company without additional oversight and approvals from the state of
Terengganu, and taking jurisdiction away from a state who was using the investment fund to help their
municipality. With backing by the Malaysian Federal Government, the state government felt compelled
to follow suit. “Mahathir, who was prime minister from 1981 to 2003, now accuses Najib of “hijacking”
the Terengganu Investment Authority, or the TIA, from the state government. Not so, 1MDB said in a
statement: The state government willingly “decided to withdraw from the TIA” after the federal
government guaranteed the TIA’s bonds.” Bloomberg BusinessWeek, Yoolim Lee and Ellfie Chew. Najib
claimed 1MDB would enable him to help the Malaysian people and economy on a larger scale. How
Najib went about the acquisition; going over state government, and his overall deception of intentions for
this company, is clearly unethical in the highest capacity.
Goldman Sachs became coconspirator in a sense when he agreed to accept 1MDB as his client. The
connection was formed through personal ties to Najib through co-workers, family, and friends in the
wealthy, corporate limelight. He began representing 1MDB in 2009. Goldman’s Southeast Asia’s head
investment banker, John Leissner, facilitated the Terengganu deal before the Sultan and secured the

4. CORRUPTION IN MALAYSIAN GOVERNMENT STUNTS COUNTRY’S GROWTH 4
company for Najib. ZeroHedge Media, also heavily cited with supporting excerpts throughout, states “Mr.
Leissner was called to the royal palace to pitch the king for the business, according to people close to the
bank. Goldman won the bidding to advise the fund, which would soon be taken over by the national
government and named 1Malaysia Development Bhd.” Durden, Tyler. Years later when the right
opportunity to offer the bonds presented itself, they chose to do so privately and exclusively to a few
selected companies and made a substantial 9% commissioners fee. ”Goldman established a close and
profitable relationship with 1MDB. From 2012 to 2013, the bank arranged three bond sales for the
company, totaling $6.5 billion. Fees,commissions, and expenses for Goldman totaled $593 million”.
Bloomberg BusinessWeek, Lee,Yoolim and Chew,Elffie. Sachs must have known that the bonds being
offered were illegitimate. It was clear that the privately distributed bonds yielded an impractical interest
rate too appealing to be realistic.
If I were CEO of the Goldman Sachs Group, Inc.,I would not have had an ethical issue to resolve because
I would have declined to do business with 1MDB when I caught the first hints of fraudulent activity.
Incomplete, nontransparent information producing untimely, qualified audit reports would have been an
indication of the company’s illegitimacy. Similarly, just as Song Dal Sun declined to do business based
off the logic from the following quote, “With such an attractive yield, 1MDB could easily sell the notes
directly to institutional investors through a global offering. Instead, Goldman Sachs was privately selling
1MDB notes worth $3 billion backed by the Malaysian government. “Does it mean ‘explicit guarantee’?”
he (Song) recalls asking the Goldman salesman…“I didn’t get a straight answer,” Song says. “I decided
not to buy them.”” Bloomberg Business Week, Lee,Yoolim and Chew, Elffie. Thus I believe Goldman
was fully aware that the transactions he was facilitating were not just unethical, but detrimental to the
economy. Therefore I conclude that Goldman, and involved representatives, are just as guilty as Najib for
their choices and should be held accountable for the effects the company’s transactions has had on the
economy. It reflects poorly on Goldman Sachs Group, Inc. and its representatives; they look greedy,
unprofessional and unethical.

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The effect of this claim has surely tarnished the credibility of 1MBD company after approximately 11
billion dollars borrowed from the bond sales virtually disappeared, which is up to the federal government
to eventually repay. The lack of transparency within the company left many to speculate different
theories. One idea is that the company used as a “slush fund”. Supporting statements taken from
Zerohedge,retrieved from The Wall Street Journal illustrates, “On July 3, the Wall Street Journal, citing
documents from government probes, reported that investigators believe almost $700 million in cash
moved through state agencies,banks, and companies linked to 1MDB before eventually finding its way
into Najib’s personal accounts”. Durden,Tyler. The generalreelection, which continued Najib’s position
of power, was merely two months prior to one of the larger bond sales underwritten by Goldman. With
strict political campaign laws pertaining to financing and donations, it was speculated some of the money
was used for funding the reelection campaign. “1MDB opted for a private placement to ensure the timely
completion of this economic initiative,” Bloomberg Business Week, Yoolim Lee and Ellfie Chew. The
timing was a coincidence too big to ignore, but statements from Najib and 1MDB cited in Bloomberg
Business Week,deny all allegations however there are numerous inexplicable instances that are too
substantial to be denied without explanation. An article from Zerohedge illustration supports the
preceding and following paragraphs,““ In one instance, the UAE went looking for a $1.4 billion collateral
payment a subsidiary of an Abu Dhabi wealth fund supposedly received from 1MDB and couldn't find it.
This same subsidiary - whose manager was fired earlier this year - guaranteed $2.3 billion in mystery
money that 1MDB claimed was parked in the Cayman Islands in order to secure a sign-off from Deloitte
after KPMGwas dismissed as 1MDB's auditor for asking too many questions. Subsequently, another
$993 million turned up missing.” Durden Tyler.
The effect the company had on society was absolutely devastating for Malaysia. Najib seemingly took
the reins of the economy and single handedly drove it into the ground. “1MDB’s star-crossed existence
mirrors the misfortunes of this country of 30 million people. Najib set up 1MDB at a time when the
Malaysian economy was on the mend; it expanded by 7.4 percent in 2010, becoming one of the fastest

6. CORRUPTION IN MALAYSIAN GOVERNMENT STUNTS COUNTRY’S GROWTH 6
growing in Southeast Asia.” Bloomberg BusinessWeek, Lee,Yoolim and Chew,Elffie. Just five years
later the statistics paint a much meeker picture. Bloomberg’s article continues, “The force of the scandal
helped topple the ringgit, the worst-performing currency in Asia as of July 16, down 8.1 percent against
the dollar since the start of the year. Foreign reserves plunged 20 percent in June from a year earlier.”
Lee,Yoolim and Chew,Elffie. Malaysia and its 30 million citizens have been struggling for a long time
to become a first world country and is by no means a stranger to economic setbacks. Malaysia
consistently has been beaten down by a greed fueled government seemingly without regards for ethics or
concern for their people. Malaysia has been dealing with corruption for decades.
A shift in political power would be a positive change conducive to managing the unethical practices and
corruption plaguing the country. Malaysia’s representation of implementing a democratic constitution into
their preexisting monarchial system of government places more power on the executive branch in their
version of the, United States,“checks and balances” system. This statement is backed up by an article in
“Aljazeera America”,displaying a misuse of Prime Ministers Najib’s power and actions throughout.
Najib had the capacity, after facing scrutiny, of firing at least six people listed in the article whom he felt
threatened; they were looking into his wrongdoings and was seeking justice for his allegations, including
an Attorney General. “Malaysian Prime Minister Najib Razak, stung by allegations that he received some
$700 million in government money, fired the attorney general who had been investigating him and a
deputy who has been among his most prominent critics on Tuesday…Najib said he also dropped four
other ministers to strengthen his administration and ensure they can “work as a team”.” Bloomberg
Business Week reports another example of abusing political power, stating, “Malaysian authorities this
year have arrested more than 150 journalists, activists, opposition politicians, and lawyers on sedition
charges or under a peacefulassembly act that strictly regulates public protests”. The article goes into
further detail explaining how those particular individuals were not only suspicious, but worked closely at
times with Najib in his personal affairs and for 1MDB.

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Another change in policy which should be implemented to improve ethical decision making in Malaysia
is their free speech/freedom of the press laws. Strict censorship compliance regulations on the printing
and journalism industry prohibit the publications of newspapers and censorship of media outlets from
reporting news which conflicts with the government’s agenda or can influence citizen’s opinion in any
way. The following is taken directly from the “Printing Presses Publication of 1984”, Laws of Malaysia,
which goes into great detail of the strict censorship laws in Malaysia and serious repercussions for merely
reporting the government in an unflattering light, “PART IV CONTROL OF UNDESIRABLE
PUBLICATIONS Undesirable publications 7. (1) If the Minister is satisfied that any publication contains
any article…any manner prejudicial 10 Laws of Malaysia ACT 301 to or likely to be prejudicial to public
order, morality, security, or which is likely to alarm public opinion…prohibit the printing, importation,
production, reproduction, publishing, sale, issue, circulation, distribution or possession of that publication
and future publications of the publisher concerned…Where the Minister is satisfied that the publisher of
any publication has acted in contravention of the Act or any rules or order made thereunder or any
condition of the license or permit or any law relating to sedition or defamation” Lumpur, Kuala, pg.10.
The potential for an informative platform by the Malaysian press should provide the ability to speak
candidly. This freedom of speech would benefit society by educating and empowering their citizens to
expose, interrupt, or prevent ethical corruption from being swept under the rug. Being allowed to report
controversial political issues could have shed light on the lack of transparency in 1MDB’s operations and
benefit not only Malaysia, but spread global awareness on future current events.
Malaysian government and 1BDH, a federal company, is extremely corrupt and unethical. What’s even
more alarming, the owner of the company has the highest title of government, apart from the “royal”
family, whom the Prime Minister needs clearance from to follow through on a majority of the major
decisions. 1MBD unfortunately represents a series of transactions which remain unheard of preventing
Malaysia from becoming a developed nation. Had a high-profile American like Goldman Sachs not gotten

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involved perhaps this scandal would have remained undiscovered and the audit of 1MDB unsought. It
makes me wonder how much corruption truly exists in Malaysia.

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Works Cited
Durden, Tyler. "FBI, DOJ Probe Goldman On Malaysia Prime Minister's Slush Fund." Zero Hedge, 14
Oct. 2015. Web. Nov.-Dec.2015. Retrieved from, <http://www.zerohedge.com/news/2015-10-14/fbi-
doj-probe-goldman-malaysia-prime-ministers-slush-fund>.
"Goldman Sachs under FBI, U.S. DOJ Scrutiny over 1MDB Probe." Thomson Reuters, 14 Oct. 2015.
Web. 01 Dec. 2015. Retrieved from, <http://www.reuters.com/article/2015/10/14/malaysia-1mdb-
goldman-sachs-idUSL3N12E21420151014#tmVEk4o2LCa2w56T.97>.
Lee,Yoolim and Elffie Chew. "The Scandal That Ate Malaysia." Malaysia's Najib Razak Feels Heat as
State Owned 1MBDMelts Down. Bloomberg, 21 July 2015. Web. 22 Nov. 2015. Retrieved from
<http://www.bloomberg.com/news/articles/2015-07-21/malaysia-s-najib-razak-feels-heat-as-state-owned-
1mdb-melts-down>.
Lumpur, Kuala, and Bagi Pihak. "Printing Presses and Publications 1984." Trans. Dan Dengan. LAWS OF
MALAYSIA (1984):22 Pgs. Percetakan Nasional Malaysia Berhad,2001. Web. 26 Nov. 2015. Retrieved
from <http://www.agc.gov.my/Akta/Vol.%207/Act%20301.pdf.>.
Tat, Ho Kay. "We Could Not Walk Away on Finding out about the Scheme to Cheat Malaysia of Billions
of Ringgit." - The Malaysian Insider., Ed. The Edge Media Group, 21 July 2015. Web. Nov.-Dec. 2015.
Retrieved from, <http://www.themalaysianinsider.com/malaysia/article/we-could-not-walk-away-on-
finding-out-about-the-scheme-to-cheat-malaysia-of>.
Zachariah, Elizabeth. "Ringgit Slumps to 16-year Low, Money Changers Warned against Hoarding
Foreign Currencies." - The Malaysian Insider., 22 July 2015. Web. 07 Dec. 2015. Retrieved from
<http://www.themalaysianinsider.com/malaysia/article/ringgit-weakest-in-16-years-money-changers-
warned-against-stockpiling-forei?google_editors_picks=true>.